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Unprofitable Tencent-Backed Meituan Takes Orders for $4.4 Billion IPO

(Bloomberg) -- Meituan Dianping started taking orders for a Hong Kong initial public offering that could raise as much as $4.4 billion as it warned there was no guarantee it would ever become profitable.

The restaurant review and delivery giant backed by Tencent Holdings Ltd. is offering 480.27 million new Class B shares at HK$60 to HK$72 apiece, according to terms for the deal obtained by Bloomberg on Tuesday. Five cornerstone investors including Tencent have agreed to buy a combined $1.5 billion of stock in the offering, the terms show.

Meituan’s IPO will bankroll its costly expansion into businesses from ride-hailing to finance as it pursues an ambition to become a super-app in the vein of Tencent’s own WeChat. That sets it up for a clash with Alibaba Group Holding Ltd., which is spending billions to try and seize control of China’s $1.3 trillion food delivery and online services industry. In ride-hailing, Meituan had intended to take on Didi Chuxing, the startup that defeated Uber Technologies Inc. in China. But in Tuesday’s updated prospectus, the company said it didn’t expect to further expand its existing pilot service given “current market dynamics.”

Meituan’s IPO filings show a company growing rapidly but also hemorrhaging cash: it lost $2.9 billion in 2017 on changes in the fair value of its preferred stock. Even without the accounting adjustment, its operating loss last year was 3.8 billion yuan ($557 million).

The company released more details on its financial performance on Tuesday. In the four months ended April, revenue surged 95 percent to 15.8 billion yuan while its loss almost tripled to 22.8 billion yuan, which includes the impact of acquiring unprofitable bike sharing startup Mobike.

“We cannot assure you that Mobike or our business as a whole will achieve profitability in the future,” it said in a filing.

Tencent has committed to buy $400 million of stock in in Meituan’s IPO, while Oppenheimer agreed to invest $500 million, the terms show. Darsana Capital Partners will purchase $200 million of shares, while fellow hedge fund Landsdowne Partners agreed to invest $300 million. The China Structural Reform Fund committed to purchase $100 million, the terms show.

Meituan expects to take investor orders through Sept. 12 and price the offering that day during U.S. Eastern hours. It aims to start trading Sept. 20, the terms show. Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. are joint sponsors of the offering, while China Renaissance Holdings Ltd. is sole financial adviser.

Chief Executive Officer Wang Xing founded Meituan.com in 2010 as a group-buying site similar to Groupon Inc. before a 2015 merger with Dianping, which provided reviews of restaurants and other local businesses. Wang will remain controlling shareholder after the company lists, according to Meituan’s preliminary prospectus.

Meituan would be only the second company to list with weighted-voting rights in Hong Kong, after smartphone maker Xiaomi Corp. priced a $5.4 billion share sale in June. The city’s market regulators tweaked rules this year to try and attract more of China’s tech darlings, which like Alibaba have previously favored the U.S.

It’ll try to get investors to focus on its rapid top-line expansion, in the tradition of Amazon.com Inc. and other fast-growth firms that bled money for years. It remains to be seen if the market will overlook its significant spending on marketing.